ISSUE BRIEF January 2020 Drug Price Moderation in Germany: Lessons for U.S. Reform Efforts James C. Robinson, Ph.D. Patricia Ex, Ph.D. Dimitra Panteli, M.D., Dr.P.H. Leonard D. Schaeffer Professor of Managing Director Senior Fellow Health Economics German Managed Care Association (BMC) Berlin University of Technology University of California, Berkeley ABSTRACT TOPLINES ISSUE: Public and private payers in the United States negotiate prices with Germany uses positive drug manufacturers but in a less structured manner than in Germany. and negative incentives to encourage drugmakers to This has led to higher prices, administrative burdens on physicians, and moderate drug prices. significant cost-sharing for patients in the United States, compared with Germany. Germany’s system for setting GOALS: Describe how Germany sets drug prices and identify lessons for drug prices requires only modest the United States. government intervention. METHODS: Interviews with leaders in payer, policy, patient, and pharmaceutical industry organizations in Germany. Drugs that are not truly innovative cannot cost more KEY FINDINGS AND CONCLUSION: Germany’s system, which uses than similar drugs in Germany. centralized drug assessment and price negotiation for new drugs coupled with reference pricing for noninnovative drugs, has resulted in substantially lower drug prices compared with the United States. Germany encourages manufacturers to moderate prices of innovative drugs through positive incentives (such as immediate coverage and the ability to obtain full list price for the first year after launch) and through negative incentives (such as mandatory arbitration when price negotiations fail). In the United States, efforts to control drug spending have centered on limiting patient access. U.S. drug prices could be reduced if Medicare and private payers standardized how they evaluate the clinical benefit of a drug, translate the benefit into a price, and resolve disagreements between negotiating parties. Drug Price Moderation in Germany: Lessons for U.S. Reform Efforts2 INTRODUCTION of 48 indemnity insurers rather than through the sickness Recent debates over drug policy reform in the United funds. The indemnity insurers are a mix of nonprofit and States have often been marked by political rancor.1 That for-profit firms that can charge premiums according to discord is notably absent in Germany, whose approach to the expected health risk of the enrollee, which sickness setting drug prices is largely accepted by all stakeholders. funds cannot do. But unlike the sickness funds, indemnity While various groups in the country have ideas for insurers do not benefit from subsidies for renouncing incremental improvements, none dispute the legitimacy underwriting. The insurance system is managed by the of Germany’s approach, which involves centralized Federal Joint Committee (G-BA), a private organization pharmaceutical assessment and price negotiations. governed by the associations of sickness funds, physicians, hospitals, and patient advocates.3 Both Americans and Germans receive health care through competing, private health plans. Yet drug prices in A SELF-GOVERNED SYSTEM FOR SETTING Germany are substantially lower than in the U.S. Insurers DRUG PRICES in Germany impose no prior authorization requirements on physicians. Guidelines for appropriate prescribing Germany’s institutional structure for drug pricing includes are developed by physician associations, not by health three main components: insurers. And only nominal cost-sharing is required • a scientifically focused but politically accountable of German patients, who pay neither coinsurance nor entity that conducts health technology assessments deductibles. This contrasts with trends in insurance for each new drug benefit design in the U.S., where patients increasingly are required to satisfy an annual deductible plus up to 33 • price negotiations between drug manufacturers and percent coinsurance for their prescriptions. the association of health plans, and This issue brief describes the institutional structure • reference pricing for noninnovative drugs with of the German pharmaceutical pricing system and its therapeutically similar alternatives.4 applicability to the U.S. Germany’s approach to setting drug prices is self-governed by insurers, providers, and patient advocacy groups, but GERMANY’S MULTIPAYER HEALTH SYSTEM it is subject to oversight by the federal Ministry of Health In Germany, there is no public insurance plan or option. and, indirectly, by legislative committees at the state and All citizens and permanent residents have their health federal levels. Elected officials are politically accountable insurance benefits administered through private managed to voters for the ease of access to drugs, to employers and care plans. Most Germans obtain health insurance from employees for the premiums charged by the sickness one of 110 competing, nongovernmental “sickness funds,” funds, and to taxpayers for the subsidies needed to finance with the premiums paid by employers and employees the gaps in the insurance system. and with governmental subsidies for the unemployed Drug price negotiations are conducted not by each insurer and retired.2 These nonprofit health plans participate in individually but rather by the national association of the national system of employer-sponsored payment, sickness funds, the GKV-SV. Collective negotiations permit risk adjustment, and centralized price negotiations with payers to achieve a scale and leverage considerably larger physicians, hospitals, and pharmaceutical manufacturers. than that available to any one insurer. Indemnity insurers Approximately 10 percent of the population, mostly do not participate in these negotiations but will pay the high-income individuals, opts for coverage through one prices that emerge. commonwealthfund.org Issue Brief, January 2020 Drug Price Moderation in Germany: Lessons for U.S. Reform Efforts3 The negotiated drug price will be paid by all the sickness the product and establishes its own price. The sickness funds and indemnity insurers regardless of the volume funds and indemnity insurers must accept and pay the each uses. The negotiations generate a discount that lowers board’s price. The manufacturer can withdraw its product the price for all payers and purposes, and not a rebate that but thereby forfeits all sales in Europe’s largest market. varies across insurers based on their scale and volume of Relatively few drugs are withdrawn by their manufacturers; drug purchases. The new price is transparent to any entity of these, the overwhelming majority were found by G-BA to willing to subscribe to the publicly maintained Lauer-Taxe offer no incremental benefit compared to existing drugs.5 database (originally developed so that pharmacies know Sometimes manufacturers withdraw drugs evaluated by which price to pay to drug distributors). Germany is the the G-BA as offering only moderate incremental benefit only nation for which negotiated net prices, and not merely over a low-priced comparator because the resulting net manufacturer-established list prices, are transparent. price could adversely affect their pricing strategy in other Both insurers and manufacturers face a strong reputational nations. Many nations use external reference pricing as risk if they fail to agree on a price. More tangibly, failure one factor when setting prices, and a low price negotiated to agree causes the drug to be referred to an independent in the largest and wealthiest European nation would serve arbitration board, which conducts its own analysis of as a ceiling to prices elsewhere, except in the U.S.6 commonwealthfund.org Issue Brief, January 2020 Drug Price Moderation in Germany: Lessons for U.S. Reform Efforts4 In Germany, a manufacturer is prohibited from nonprofit Institute for Clinical and Economic Review unilaterally raising its price after the initial negotiations.7 (ICER) conducts clinical and cost-effectiveness studies and A price only changes if the drug undergoes a new clinical recommends price benchmarks, which are currently used evaluation by the G-BA, typically when new evidence of on a voluntary basis by payers such as the U.S. Department safety or efficacy is presented, and the GKV-SV negotiates of Veterans Affairs, Express Scripts, and CVS Caremark.12 a new price based on that evaluation. This contrasts with the U.S. system, where manufacturers routinely increase Utilization Management prices each year after launch, rarely with the support of The transparent and evidence-based manner by which new clinical evidence.8 drugs are evaluated in Germany has implications not The drug prices set through these combined approaches merely for drug evaluation in the United States, but also are significantly lower than those in the U.S., and the gap for the manner in which U.S. payers are permitted to appears to be widening over time. U.S. net prices for the manage utilization. Currently, insurers and pharmacy most expensive drugs are up to four times higher than benefit managers (PBMs) restrict physician and patient their German equivalents.9 The Office of the Assistant access to drugs through formulary exclusion, prior Secretary for Planning and Evaluation (ASPE) estimates authorization, and cost-sharing. In some cases, these that U.S. prices for infused drugs covered under Medicare utilization management initiatives are developed in a Part B are 80 percent higher than those in 16 comparable transparent manner, but often they are not.13 Each insurer nations, including Germany.10 A recent study reported that and PBM develops their own coverage and reimbursement net prices for infused drugs in the U.S. were 30 percent rules at their own discretion, using a combination of higher than those in Germany in 2006 and had risen to 60 published clinical literature or other evidence and percent higher in 2018.11 financial considerations, including price negotiations. The U.S. health system could require utilization management to be based on comparative clinical evaluations in a IMPLICATIONS FOR THE REFORM EFFORTS IN manner transparent to physicians and patients.14 THE UNITED STATES The German system does not allow sickness funds and Evaluation of Benefit indemnity insurers to use utilization management tools. Historically, U.S. stakeholders have shied away from All payers must cover all drugs approved by the G-BA. centralized price-setting for drugs and other health While they can conduct retrospective reviews to identify care technologies. Currently, the clinical benefits of new physicians whose prescribing patterns are outside the therapies are assessed, implicitly if not explicitly, by European Medicines Agency (EMA) and G-BA standards, each insurer individually. It is unlikely that the U.S. will they cannot require prior authorization to prescribe authorize a single entity to conduct health technology drugs. Consumer cost-sharing is modest and determined assessments for all public and private payers. However, by statute, not by individual payers. each payer could be required to use a formal and evidence-based process, conducted internally or by Reference Pricing an independent entity, as the basis for its coverage and In Germany, innovative drugs that offer an incremental reimbursement decisions. benefit over existing alternatives are rewarded with higher The U.S. has a quasi-public entity in the Patient-Centered prices than those drugs that do not. These higher prices Outcomes Research Institute (PCORI), which conducts are proportional to their greater benefit over comparable and commissions comparative clinical assessments. products in the German market and in other European Currently, PCORI’s assessments cannot be used to nations. These principles could be adopted by U.S. payers determine insurance coverage or set prices. The private, once a system of comparative clinical assessment was in commonwealthfund.org Issue Brief, January 2020 Drug Price Moderation in Germany: Lessons for U.S. Reform Efforts5 place, since many insurers and PBMs already have the NOTES scale equivalent to the German (and other European) 1 Rachel Sachs, “Understanding the House Democrats’ health insurance systems. Drug Pricing Package,” Health Affairs Blog, Sept. 19, Manufacturers of noninnovative drugs are not allowed to 2019, https://www.healthaffairs.org/do/10.1377/ charge more than their comparators and must compete hblog20190919.459441/full/; and Rachel Sachs, for market share with lower prices, largely through “Understanding the Senate Finance Committee’s Drug the process of reference pricing. By way of contrast, Pricing Package,” Health Affairs Blog, July 26, 2019, https:// the mainstay of U.S. pharmaceutical benefit design is www.healthaffairs.org/do/10.1377/hblog20190726.817822/ the multitiered formulary. Under tiered formularies, full/. the patient typically is responsible for the full price of 2 Martin Wenzl and Valérie Paris, Pharmaceutical expensive specialty drugs until the deductible is reached Reimbursement and Pricing in Germany (OECD, June and then a percentage of the price until the annual, out-of- 2018), https://www.oecd.org/health/health-systems/ pocket maximum is reached. In contrast, reference pricing Pharmaceutical-Reimbursement-and-Pricing-in- in Germany ensures there is always at least one drug in Germany.pdf. each therapeutic class available for nominal cost-sharing. 3 Federal Joint Committee (Gemeinsamer Reference pricing has been used to a limited extent by Bundesausschuss), https://www.g-ba.de/english/. self-insured employers and labor unions in the U.S. and has resulted in product switching by patients and lower 4 “Responsibilities and Objectives of IQWiG,” spending for sponsors. The savings have stemmed from Institute for Quality and Efficiency in Health Care, switches from high-priced to low-priced drugs, rather 2019, https://www.iqwig.de/en/home.2724.html; James than from actual price reductions, since the number C. Robinson, Patricia Ex, and Dimitra Panteli, “How of patients covered has been small.15 If adopted more Drug Prices Are Negotiated in Germany,” To the Point broadly on the model of Medicare’s least costly alternative (blog), Commonwealth Fund, June 13, 2019, https:// approach, reference pricing could generate savings www.commonwealthfund.org/blog/2019/how-drug- not only through product switching but also through prices-are-negotiated-germany; and James C. Robinson, competitive price reductions.16 Dimitra Panteli, and Patricia Ex, Reference Pricing in Germany: Implications for U.S. Pharmaceutical Pricing (Commonwealth Fund, Feb. 2019), https://www. CONCLUSION commonwealthfund.org/publications/issue-briefs/2019/ The German system of health technology assessment, jan/reference-pricing-germany-implications. price negotiations for innovative drugs, and reference pricing for noninnovative drugs has moderated spending 5 Ariel D. Stern et al., “The Impact of Price Regulation on with only a modest amount of governmental intervention. the Availability of New Drugs in Germany,” Health Affairs The contemporary mix of legislative proposals in the U.S. 38, no. 7 (July 2019): 1182–87, https://www.healthaffairs. includes many features of the German approach, including org/doi/abs/10.1377/hlthaff.2018.05142. price negotiations for innovative drugs and limits on 6 Stern et al., “Impact of Price,” 2019. postlaunch price increases. To achieve the results obtained by the German system in the U.S., these elements need to 7 Inmaculada Hernandez et al., “The Contribution of be combined with mechanisms to evaluate comparative New Product Entry Versus Existing Product Inflation clinical benefit, determine prices when negotiations fail, in the Rising Costs of Drugs,” Health Affairs 38, no. 1 and obtain price discounts on noninnovative drugs. (Jan. 2019): 76–83, https://www.healthaffairs.org/doi/ full/10.1377/hlthaff.2018.05147. commonwealthfund.org Issue Brief, January 2020 Drug Price Moderation in Germany: Lessons for U.S. Reform Efforts6 8 Gerard F. Anderson, “It’s Time to Limit Drug Price 14 American Medical Association et al., Prior Increases,” Health Affairs Blog, July 25, 2019, https://www. Authorization and Utilization Reform Principles (AMA et healthaffairs.org/do/10.1377/hblog20190715.557473/full/. al., 2018), https://www.ama-assn.org/sites/ama-assn.org/ files/corp/media-browser/principles-with-signatory-page- 9 Aaron S. Kesselheim, Jerry Avorn, and Ameet for-slsc.pdf; and Matthew Herder, “Pharmaceutical Drugs Sarpatwari, “The High Cost of Prescription Drugs in the of Uncertain Value, Lifecycle Regulation at the U.S. Food United States: Origins and Prospects for Reform,” JAMA and Drug Administration, and Institutional Incumbency,” 316, no. 8 (Aug. 23/30, 2016): 858–71, https://jamanetwork. Milbank Quarterly 97, no, 3 (Aug. 2019): 820–57, https:// com/journals/jama/article-abstract/2545691. www.milbank.org/quarterly/articles/pharmaceutical- 10 U.S. Department of Health and Human drugs-of-uncertain-value-lifecycle-regulation-at-the- Services Office of the Assistant Secretary for us-food-and-drug-administration-and-institutional- Planning and Evaluation, Comparison of U.S. incumbency/. and International Prices for Top Medicare Part B 15 James C. Robinson, Christopher Whaley, and Timothy Drugs by Total Expenditures (ASPE, Oct. 25, 2018), T. Brown, “Association of Reference Pricing with Drug https://aspe.hhs.gov/system/files/pdf/259996/ Selection and Spending,” New England Journal of Medicine ComparisonUSInternationalPricesTopSpending 377, no. 7 (Aug. 17, 2017): 658–75, https://www.nejm.org/ PartBDrugs.pdf. doi/10.1056/NEJMsa1700087?url_ver=Z39.88-2003&rfr_ 11 Fabian Berkemeier, Christopher Whaley, and James C. id=ori:rid:crossref.org&rfr_dat=cr_pub%3dwww.ncbi.nlm. Robinson, “Increasing Divergence in Drug Prices Between nih.gov. the United States and Germany After Implementation of 16 Pew Charitable Trusts, The Least Costly Alternative Comparative Effectiveness Analysis and Collective Price Approach for Payment of Medicare Part B Drugs (Pew Negotiations,” Journal of Managed Care and Specialty Trusts, March 2016), https://www.pewtrusts.org/-/media/ Pharmacy 25, no. 12 (Dec. 2019): 1310–17, https://www. assets/2016/03/the_least_costly_alternative_approach_for_ jmcp.org/doi/full/10.18553/jmcp.2019.25.12.1310. payment_of_medicare_part_b_drugs.pdf. 12 C. Bernie Good, Tom Emmendorfer, and Michael Valentino, “VA Responds to Concerns About Collaboration with ICER,” Health Affairs Blog, Oct. 25, 2017. https:// www.healthaffairs.org/do/10.1377/hblog20171024.745943/ full/; Joseph Walker, “Regeneron and Sanofi Plan to Cut Cholesterol Drug Price in Exchange for Wider Coverage,” Wall Street Journal, March 10, 2018, https://www.wsj.com/ articles/regeneron-and-sanofi-plan-to-cut-cholesterol- drug-price-in-exchange-for-wider-coverage-1520690400; and “Amgen Makes Repatha (Evolocumab) Available in the U.S. at 60% Price Discount,” Amgen (press release), Oct. 24, 2018, https://www.amgen.com/media/news- releases/2018/10/amgen-makes-repatha-evolocumab- available-in-the-us-at-a-60-percent-reduced-list-price/. 13 Yujin Park et al., “The Effect of Formulary Restrictions on Patient and Payer Outcomes: A Systematic Literature Review,” Journal of Managed Care and Specialty Pharmacy 23, no. 8 (Aug. 2017): 893–901, https://www.jmcp.org/ doi/10.18553/jmcp.2017.23.8.893. commonwealthfund.org Issue Brief, January 2020 Drug Price Moderation in Germany: Lessons for U.S. Reform Efforts7 ABOUT THE AUTHORS For more information about this brief, please contact: James C. Robinson, Ph.D., is the Leonard D. Schaeffer James C. Robinson, Ph.D. Leonard D. Schaeffer Professor of Health Economics Professor of Health Economics and director of the Berkeley Director of the Berkeley Center for Health Technology Center for Health Technology at University of California, University of California Berkeley Berkeley. james.robinsonberkeley.edu Patricia Ex, Ph.D., is managing director of the German Managed Care Association (BMC). She started her career as research associate to the former German Federal Minister of Health and vice president of the Parliament, Ulla Schmidt. She received her doctorate at the Technical University of Berlin and completed an Erasmus Mundus Master of Excellence in Euroculture at the Universities of Göttingen and Bilbao, Spain. Dimitra Panteli, M.D., Dr.P.H., is a senior fellow at the Berlin University of Technology. A 2016–17 Commonwealth Fund Harkness Fellow in Health Care Policy and Practice, Panteli’s work focuses on evidence- based decision-making in health care, primarily health technology assessment, and health systems research, most recently on pharmaceutical regulation and quality assurance. She is a collaborator of the European Observatory on Health Systems and Policies, where she serves as editor for the Health Systems in Transition series, and is a member of the extended board of the German Network on Evidence-Based Medicine and the German Society for Technology Assessment in Health Care. Panteli received her doctorate in public health from the Berlin University of Technology, her M.Sc.P.H. from the Charité Medical University in Berlin, and her medical degree from the Aristotle University of Thessaloniki in Greece. Editorial support was provided by Deborah Lorber. commonwealthfund.org Issue Brief, January 2020 About the Commonwealth Fund The mission of the Commonwealth Fund is to promote a high-performing health care system that achieves better access, improved quality, and greater efficiency, particularly for society’s most vulnerable, including low-income people, the uninsured, and people of color. Support for this research was provided by the Commonwealth Fund. The views presented here are those of the authors and not necessarily those of the Commonwealth Fund or its directors, officers, or staff.